Real estate adviser Savills reveals London and the south east average loan-to-value ratios have been boosted by property price increases.
According to the research, British mortgaged owner occupiers have an average outstanding loan-to-value of 48 per cent, but this ranges from 39 per cent in London to 60 per cent in the North East of England, despite the fact the total value of mortgage debt in London is more than six times greater.
Lucian Cook, head of Savills UK residential research, said this reflects the fact owner occupiers in London have benefitted from strong price growth in the period post credit crunch, which has substantially added to their net housing wealth.
Mr Cook added in contrast, residential property in the north east carries a much greater level of debt relative to the underlying value of the assets on which it is secured, due to lower longer term price growth, and a much more muted performance over the last 10 years.
The research showed this variation is even more pronounced at a local level, with the outstanding loan-to-value among occupiers with a mortgage in Burnley standing at 88 per cent while in Camden it is just 15 per cent.
Region | Outstanding owner occupied mortgage debt | Average outstanding mortgage | Average LTV for owner occupiers with a mortgage | Average outstanding mortgage vs 2x average earner income |
London | £182bn | £215,280 | 39% | 2.99 |
South East | £192bn | £160,502 | 45% | 2.56 |
East | £111bn | £139,692 | 47% | 2.35 |
South West | £79bn | £114,503 | 45% | 1.84 |
West Midlands | £69bn | £98,626 | 54% | 2.01 |
East Midlands | £60bn | £95,748 | 54% | 1.90 |
North West | £88bn | £92,153 | 57% | 1.75 |
Scotland | £68bn | £88,843 | 57% | 1.57 |
Yorkshire and the Humber | £61bn | £86,724 | 55% | 1.75 |
Wales | £33bn | £84,241 | 55% | 1.71 |
North East | £28bn | £79,534 | 60% | 1.66 |
Source: Savills research
Mr Cook said that with regard to loan-to-income, ratios are more stretched in London despite the higher equity cushion.
He said: “Some of the markets with the least equity are less affected by affordability constraints as they have lower loan to income multiples, but people’s ability to trade up the housing ladder may be limited by a lack of accumulated equity to put down as a deposit.”
Savills researchers concluded the markets most exposed to rate increases, and conversely most protected by ongoing low interest rates, are those with a combination of relatively high outstanding loan-to-income and high loan-to-value ratios.
These include areas such as Newham, Crawley, Barking and Dagenham, Tower Hamlets, Harlow, Worcester, Watford, and Slough.
At the other end of the scale areas such as West Somerset, Camden, Eden, Copeland, Richmondshire and North Norfolk, where outstanding levels of debt are much less of a constraint.
The research revealed that Kensington and Chelsea and Westminster also fall into this list, though their markets are affected much more significantly by issues such as stamp duty.
Caroline Siarkiewicz, head of debt for the Money Advice Service, said in spite of low mortgage rates, today’s research highlights the need for homeowners across the UK to prepare and be aware of the impact of a potential increase in interest rates.
“While recent commentary suggests we may not see a rise until 2017, any increase for homeowners on variable rate mortgages could place extra financial pressure on budgets, particularly those with mortgages with higher average loan to value rates.”
ruth.gillbe@ft.com
